Profitability in Transportation
Transportation services have a tough business model, though initially do not always appear that way. Historically, transportation required significant capital expenditure (think streetcars or rail lines) and the time it took to pay off the debt from the initial expenditure could not solely be paid for through fare collection. The streetcars from the past was able to make much of its revenue through selling land that it owned when building the streetcar lines. The operating expenses could barely be covered through the fare collection, but opening up low value land via the streetcar created higher value land that when sold increased firm profitability (see streetcar history in LA below):
But interestingly enough, the streetcar started as bankrolling machines that had investors pouring in capital similar to what we see today with micromobility! Initial estimates, like this from McKinsey, considered micromobility a $300B industry with fairly easy profit margins given the low investment costs in scooters. To put that in perspective, this value is a little larger but almost equivalent to Toyota's total GLOBAL revenues. Today, micromobility services are facing increasing pressures to profitability given tough competition and slowing ridership compared to when they first came out, making this transportation service yet again a tough business model.
One potential way towards profitability, as discussed by Emily Warren in our UCLA urban planning class, is to develop a multi-modal system like Uber is planning with their new strategy. Lyft similarly has adopted this strategy called mobility as a service:
A multimodal platform could definitely be one way to increase network effects and create a platform that users are reliant on for their transportation needs, but this still would require significant capital expenditure with fairly low payback from a fare standpoint. Additionally, this strategy relies on people giving up their personal automobiles, which is a slow process to expect change to happen.
Additionally, some articles say that TNC profitability will come only when autonomous vehicles are proliferated given that TNC's biggest expense is their drivers. However, concerns show that that may not be the case given the high investment costs to purchase these vehicles and manage fleets (see costs from an MIT study below). The way to make rideshare with AV's possible is through high utilization rates, which may not be possible to maintain.
While new mobility solutions are facing pressures towards profitability and the solutions to doing so either through mobility as a service or autonomous vehicles could happen, though has skepticsm, one question I wonder is can we learn from history and make a profit from land value?
As cities grow, densify, and change, potentially the new mobility solutions, which could include quality public transportation connections, could grow their revenues using real estate. This has happened for many of the new transportation investments. Potentially companies could purchase sites that could be upzoned, which would inherently generate value by changing zoning. If in the development process, new mobility options for those tenants were the supported mode, the companies could increase their service utilization and also make money off of the land transaction. A lot of this would require time and public sector support, but it could be an interesting solution to changing the nature of new mobility business models and adoption.
But interestingly enough, the streetcar started as bankrolling machines that had investors pouring in capital similar to what we see today with micromobility! Initial estimates, like this from McKinsey, considered micromobility a $300B industry with fairly easy profit margins given the low investment costs in scooters. To put that in perspective, this value is a little larger but almost equivalent to Toyota's total GLOBAL revenues. Today, micromobility services are facing increasing pressures to profitability given tough competition and slowing ridership compared to when they first came out, making this transportation service yet again a tough business model.
One potential way towards profitability, as discussed by Emily Warren in our UCLA urban planning class, is to develop a multi-modal system like Uber is planning with their new strategy. Lyft similarly has adopted this strategy called mobility as a service:
A multimodal platform could definitely be one way to increase network effects and create a platform that users are reliant on for their transportation needs, but this still would require significant capital expenditure with fairly low payback from a fare standpoint. Additionally, this strategy relies on people giving up their personal automobiles, which is a slow process to expect change to happen.
Additionally, some articles say that TNC profitability will come only when autonomous vehicles are proliferated given that TNC's biggest expense is their drivers. However, concerns show that that may not be the case given the high investment costs to purchase these vehicles and manage fleets (see costs from an MIT study below). The way to make rideshare with AV's possible is through high utilization rates, which may not be possible to maintain.
While new mobility solutions are facing pressures towards profitability and the solutions to doing so either through mobility as a service or autonomous vehicles could happen, though has skepticsm, one question I wonder is can we learn from history and make a profit from land value?
As cities grow, densify, and change, potentially the new mobility solutions, which could include quality public transportation connections, could grow their revenues using real estate. This has happened for many of the new transportation investments. Potentially companies could purchase sites that could be upzoned, which would inherently generate value by changing zoning. If in the development process, new mobility options for those tenants were the supported mode, the companies could increase their service utilization and also make money off of the land transaction. A lot of this would require time and public sector support, but it could be an interesting solution to changing the nature of new mobility business models and adoption.
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